Shareholder ActivismSmall Listed Companies Interest Group of the CGI
January 2020
Boudicca professionals will share experiences of working on the majority of activist shareholder situations in the UK over the last five years. They will explore trends, the direction they expect activists to take and what we can expect to see for small listed companies in 2020.
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Shareholder activism set records for the number of campaigns in 2018/19 in the UK, and for the success of these initiatives.
Great to be here with
you today
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1. About Boudicca
2. Shareholder Activism Trends
3. Top Tips for Winning
4. The Future of Shareholder Activism and Q&As
Appendices - Case StudiesAdam Rose
Head of Corporate
Governance
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Session Overview
At this event, we will look over the impact of shareholder activism specifically in small listed companies and
how boards can and should respond.
This session will help you to:
▪ Recognise the key activist trends and whether any regulatory changes have given power to activists
including:
▪ Stricter investors’ voting policies; and changes to regulatory and advisory frameworks
▪ Understand the impact of recent shareholder activism and key players like the proxy advisers
▪ Develop proactively develop steps your board can take to avoid activist attention
▪ Shape a response to shareholder activism at your company
1. About Boudicca
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Multi-Level
Shareholder
EngagementShareholder Meetings
Analysis of
More Than
6,000200 Years
Combined
Experience
24/7Specialist
Support
2019
500Global AGMs,
EGMs and M&A
Transaction
104 Mandates• 65 AGMs
• 21 M&A
• 12 Activist
• 6 EGMs
We are a specialist shareholder engagement
advisory firm, focused on maximising shareholder
votes through progressive proxy solicitation and
corporate governance / remuneration advice
ONE GLOBAL SPECIALIST
GOVERNANCE ADVISORY FIRM
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PRISM COSEC Acquisition
(November-12)
Corporate governance and
company secretarial services
provider
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
BOUDICCA Acquisition
(May-18)
UK-based specialist shareholder
engagement company providing
Proxy Solicitation & Shareholder
Communications
RD:IR Acquisition
(September-19)
UK-based global Investor
Relations consultancy offering
wide range of services including
shareholder analysis, IR CRM
and other consultancy services
In-house launch of EQIA
• EQIA launched with own Shareholder
analysis solution in 2009
• EQIA outsourced tech using Miraqle
platform (now owned by Link) in
November 2012
Amsterdam | Chennai | Krakow | London | Minnesota | New York
• Boudicca has an extensive client base and in 2019
supported 100+ Corporate clients across the FTSE
• #1 UK Proxy Solicitor for Activism - Boudicca has
worked on the highest number of UK Takeover Panel
M&A transactions since 2017, providing proxy
solicitation services to 50+ deals valued at $100Bn+.
• The Boudicca team worked on 23 Activism Mandates
in 2018-19, with an 87% success rate, including:
► for activist shareholders such as: Elliott Advisors
(vs several targets), Western Gate (vs Stock
Spirits), Oasis Capital (Premier Foods), LIM
Advisers, Julian Dunketon (vs SuperDry) and
► supported issuer clients to defend themselves
from Activist approaches including: Barclays; De
La Rue; easyJet; FirstGroup; GKN and Just Eat.
Client Base
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2. Shareholder Activism Trends
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Activist Campaigns Globally in 2019
Source: Activist Insight, Shareholder Activism, 2019
Full Year YoY
# of targets 2014 2015 2016 2017 2018 2019 2018-19
Global 645 785 891 865 946 839 -11%
Europe 89 127 163 160 162 135 -17%
UK n/a 29 39 34 51 52 +2%
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The Activist Landscape – 2019 Highlights
▪ Global activism is still strong, although an 11% downturn from 2018-19
“After difficult activist fund returns in 2018, in 2019 activists shifted to less risky campaigns with a shorter timeframe:
Scuttle/Sweeten campaigns (M&A) with limited downside…”
▪ The number of European campaigns fell 17% to its lowest level in four years in 2019:
▪ More focus on large markets of Germany, Switzerland & France (these are 65% of European campaigns)
▪ M&A breakup activism made up 21% of all public demands at European companies in 2019, a high
▪ UK campaigns stable at 52 and still the largest target market for activists in Europe
▪ A record 147 investors launched new campaigns in 2019, incl 43 “first timers” with no prior activism history
Strategy: Activism in Europe shows a clear divergence in strategy of the activists depending on the size:
▪ Larger targets who are high performing are encouraged to accelerate existing plan
▪ Smaller companies with weaker performance where options to “fix” or redefine strategy are effective
▪ mid-cap “sweet spot” of a combination of the two approaches (71% of Q3 2019 campaigns, excl M&A)
Source: Statistics from Activist Insight “Shareholder Activism in 2019” and quote from Lazard’s 2019 Review of Shareholder Activism Link
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The Activist Landscape – Types of Activist
Who are the activists?
▪ Full time activist investors (58%) like Elliott Associates and Starboard
▪ Occasional activists (34%) – traditional active managers
▪ Institutions and Others (8%)
▪ First Timers – 47 new Activist in 2019
Trends
▪ “2019 has witnessed a shift from a few, well-known activists, to a more diversified
group of occasional agitators and institutional investors…”
▪ “Traditional institutions and occasional activists now account for almost half of all
activism campaigns”
Source: Lazard, Review of Shareholder Activism, Q3 2019 “Diversity of Agitators in Europe”
Other full time
18%
34%8%
34%
40%
= 42%
Occasional and
institutions
Activists are attracted to the UK as:
▪ They like the market a lower valuations / weak £; Europe/UK new horizon for activism; easy market to
enter and leave
▪ Corporate Governance assistance: annual election of directors; no poison pills;
shareholder/stakeholder friendly jurisdictions; and increasing cultural acceptance
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The Activist Landscape – Types of Campaign
▪ Activist demand by type – In Europe
▪ 50% Board related, M&A share from 12% to 21%
▪ Activist targets by market cap – In Europe
▪ All sizes of companies targeted, by proportion small companies less targeted directly
Source: Statistics from Activist Insight “Shareholder Activism in 2019”
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Campaign Types
Large-scale shareholder activism sometimes seeks to oust entire boards, more commonly takes issue with specific areas:
▪ Board related (50%) Committee membership and director re-election
▪ Auditor issues
▪ Executive pay
▪ Concern over company strategic direction
▪ Equity issuance
▪ Share issuance proposals
▪ Employee board representation
In many cases the campaign is resolved before moving towards a public contest
The Activist is playing a more common role in M&A activity by pressuring to:
▪ Sell the Company (31%) - Agitate for sale of target or encourage industry consolidation
▪ Break-Up / Divestiture (31%) - Agitation for a divestiture of a non-core business line or company breakup
▪ Scuttle or Sweeten Existing Deals (38%) - Entry into a live M&A situation to improve deal terms or block an ill-perceived
deal from proceeding
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Activist Campaign Research
▪ Activist shareholders will spend considerable time on research before activating a campaign
▪ Activists develop detailed attack strategies and vote projections – to determine the most ‘winnable’ resolutions to propose:
▪ Stake building
▪ Private engagement with management, private and threats of going public / legal actions
▪ Public campaign - letters, dedicated websites, social media & press, threats to propose resolutions
▪ Full campaign - calling a shareholder meeting, requisitioning resolutions, letters to shareholders
▪ Notionally ‘reasonable’ or ‘shareholder friendly resolutions will be proposed
▪ The Activist will analyse the Target shareholder base using public information (e.g. Bloomberg, ThomsonOne) and by
purchasing a Register Analysis from Argus Vickers
▪ May consider a s116 / s811 data request for more information when their proxy solicitation plans are ready to enact
▪ Activists may use retail forums (UKSA / ShareSoc) and monitor investor ‘chat’ forums
In many cases the campaign is resolved before moving towards a public contest
Activists will speak to:
- Peers and other shareholders
- Employees (current and former) and suppliers
- Proxy Advisers and Proxy Solicitors
- Lawyers and Corporate Financiers
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Classic Activist Tactics
Activist Goal Defences Success Chance
Building Stake &
Buying Voting Power
• Issuer to increase positive voting turnout from the balance of the share register
• Institutional and proxy adviser campaigns
• Retail shareholder solicitation
• Engage with shareholders in roadshows
• Highlight that strategic change direction is not in the long-term interests of all shareholders
• Focus on the improvements already made to governance structures
• Showcase expertise of incumbent Board
Low to Medium
Remove the Chairman
• Promote strength, strategy, track record and evidence of long-term value creation; Emphasise Corporate
Governance improvements and determination to ensure strong Chairman is present - and that there is a
succession plan
• Show growth under the Chairman vs. peers who have fallen in current market.
Very low
Removal of Other
Directors / Whole Board
• Assert strong Board with good independence and business strategy
• Showcase Corporate Governance improvements
• Review board processes and effectiveness and potential for additional expertise
• Engage extensively to demonstrate listening to shareholder concerns
• Demonstrate commitment to strong and independent candidates
Director/s – Low
Whole Board – very
low
Propose Shareholder
Candidates –
Independent NEDs
• Showcase adherence to good Corporate Governance; reinforce view of independence and relevant incumbent
expertise
• Emphasise lack of rigorous selection process
• Expose conflict of interest and non-independence
• Activist candidate could mean disproportionate representation and voting power
• Consider a hidden agenda such as M&A activity
Strong if one good
candidate; low if
No.is
disproportionate to
%
Wait until AGM • Defences as above dependent upon the additional resolutions submitted to the AGM Low
3. Top Tips for Winning the Vote
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Be prepared …
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Run like a defence and be proactive with shareholder and proxy adviser engagement
Produce: clearly
articulated strategy;
Proxy Risk Assessment;
shareholder
engagement Plan and
Shareholder
Event
Continuous
shareholder analysis
and engagement
Notice of meeting and
media
preparations
Control the event
Plan for: Q&As; the
activist will attend; will
produce new letters to
shareholders
Understand your shareholders Shareholder risk and vote analysis – Monitor the Register
Steer your strategy
Rally Support
Proxy and corporate governance advisory
Shareholder engagement
Start
Assemble the team
– brokers, legal,
PR, proxy advisers
Proxy methodologyPlan and actions to
win Analyse the shareholder base
Provide solutions for targeting the different shareholder
constituencies
Identify the likely concerns of shareholders and proxy advisers
Agree shareholder targets with the client and advisory team and
disseminate messaging
Manage and engage with the relevant proxy advisers
Track intentions and votes
The proxy fight … Role of the proxy consultant
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Shareholder analysis and engagementImportance of covering all bases in a proxy fight
• Shareholder analysis• Vote reconciliation• Hedge fund tracking• Social media tracking
Understand Your Shareholders
Preparation and Data Analysis
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Proxy Advisers
The advisers influencing your Institutional shareholders
• Core proxy advisers -ISS, Glass Lewis, IVIS
• Second-tier advisers -Hermes, GES, PIRC
• Collective engagement forum - The Investor Forum
• Retail shareholder advisers - ShareSoc, UK Shareholder Association.
• Coverage of front offices by client’s IR team, and corporate governance and back office by Boudicca
• Send email broadcast on day of release of notice of meeting
• Engage via corporate governance road show and proxy solicitation.
• Promote early voting through internal communications
• Co Secretariat-led actions aided by Boudicca for proxy process and tracking
• Conduct in-office proxy ‘clinics’ to stimulate awareness and voting.
• Exceptionally, undertake calls and mailings to underlying retail share owners
• Proactive targeted telephone proxy solicitation and in-office proxy ‘clinics’
• Engage with retail proxy advisers
• Microsite, social media
• Identify the underlying share owners via disclosure and provide analysis
• Target existing Advisory/Discretionary Investment Managers and encourage voting
• Contact custody accounts and trading positions in a similar way to PCBs
• Monitor hedge funds (who hold mostly CFDs and SWAPS) -determine ability to vote.
Institutions Retail (Directly Registered)
Custody, trading, hedge funds other shareholders
Likeliest source of votes and influenced by Proxy Advisers
Low impact by number of shares - important due to the number of individuals
Holdings on behalf of individual underlying beneficial holders
Likely to only vote in exceptional circumstances, e.g. contested/complex M&A
Private Client Brokers (PCB)
Directors and employees
Often last to vote if not prompted
Manage risks and maximise opportunities
Plan and execute a tailored strategy
Predict scenarios and probable outcomes
Identify shareholders with issues with resolutions
Inform your investor relations strategy
A detailed analysis of each investor constituency allows us to:
Poll Question - Influence of the Proxy Advisers
Poll Question 1:
What is the average reach of the Proxy Advisers (ISS, Glass Lewis, IA/IVIS, etc.) for 110 FTSE All-
Share companies analysed in 2019?
• 1: 0 to 15%
• 2: 15%-30%
• 3: 30%-45%
• 4: 45%-60%
• 5: 60% of more
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Proxy Adviser influence
Source: Boudicca analysis of average proxy adviser influence as a % of share capital at 110 UK companies from 2018-2019
0.4%
0.6%
16.7%
20.5%
44.1%
1.4%
48% = Average PA reach of all 110 UK companies (55% for FTSE350 members)
• Correlation between the voting recommendations of ISS and Glass Lewis and the actual votes
logged by investors
• Actively engage all the relevant proxy advisers, ensuring to contact both the standard research and
proxy contest teams of ISS and Glass Lewis
• Understand the proxy advisers’ policies for judging proxy contests and leverage this understanding
over the engagement with them
• Equal ‘airtime’ will be given to both the company and the activist, so ensure messaging is more
compelling than other side
• The recommendation reports will generally come out two weeks before the general meeting – ISS
and PIRC will provide draft reports to the company and IVIS will if they ‘red-top’ the event, but
Glass Lewis will not
• Once available, review the reports and identify any inaccuracies and points of contention and raise
these with the proxy advisers – proving ‘factual’ errors can over-turn negative recommendation
• Monitor the release of the reports and plan PR around this release
The proxy fight - Proxy adviser engagement strategy
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4. The Future of Shareholder Activism and Q&As
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Questions for 2020 and Beyond
Poll Question 2:
Favourite topic to discuss in the Q&As
• 1. Will activism increase in the UK?
• 2. Will ‘normal’ / long-term investors join the activist party?
• 3. How will increasing investor activism impact upon M&A deals?
• 4. How regulators respond to trends?
• 5. Will there be a growth in ESG related activism amongst mainstream investors?
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Boudicca Proxy Consultants
Victory through intelligent shareholder engagement
Thanks for listening!
Sheryl Cuisia – Managing DirectorD. +44 (0) 207 183 5138 M. +44 (0) 7533 706630
Adam Rose – Head of Corporate Governance & IndustryD. +44 (0) 203 475 3412 M. +44 (0) 78073 49290
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Appendices - Case Studies
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Case Study – Premier Foods / Oasis Capital
Background
▪ In 2016 Premier Foods received a bid approach from McCormick, with an
indicative price of 52p which later increased to 65p.
▪ After conducting Due Diligence, McCormick did not proceed with the Offer.
▪ A number of Hedge Funds, Including Oasis, bought into the stock during this
period.
▪ One of the larger shareholders, Hong Kong based Oasis Capital, was granted a
Board seat which was held for a short period.
The Challenge
▪ The shareholder base comprised a number of disgruntled hedge funds who
blamed the CEO for the failure of the McCormick bid and subsequent poor share
price performance. The CEO became the target of a ‘vote no’ campaign.
▪ Strategic holder Nissin Foods, with a 17% stake, had the potential to be controlling
stake for M&A and a challenge for an Activist to overcome were they to vote with
Management.
▪ Through modernisation of the business Premier foods has moved from a 40,000+
workforce to less than 3,000, the majority of any profit is essential in order to
service debt liabilities arising out of the 3 Bn Pension Fund for the formerly large
workforce.
The Outcome
▪ Whilst the CEO was re-elected at the AGM with 59.01% support, three months
after the AGM he left the Board.
Type Activism
Vote
requirement
50%+1 of shares
cast
Market Cap 301m
Date 18 July 2018
Premier Foods boss Gavin Darby
heads for exit after battle with
activist.
The Evening Standard,
November 2018
“”
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Case Study – Premier Foods / Oasis Capital (ctd.)
5 Year Premier Foods plc share price performance. Source: LSE
McCormick Exploratory Bid2018 AGM
CEO Departs
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Case Study – FirstGroup plc
Background
▪ History of U.S. activist interest in forcing Strategic change: Sandell (2013); West Face Capital
(2017) Coast Capital Management LP (2018/19) – targeted asset sales i.e. spin-off school
bus, transit, and Greyhound
The Challenge
▪ Defeating 14 resolutions proposed at Requisitioned GM - to remove 6 incumbent directors
and appoint 7 new directors
▪ Overcome ISS support for two resolutions, their supported candidate was not eligible
The Solution
▪ A concise, compelling outline of the Company’s governance and strategy.
▪ Evidence current Board members key skills, how they fit the strategy, activist candidate
research and counter governance arguments
▪ Evidence of engagement with Activist and a detailed critique of their proposals
▪ Engagement with shareholders and proxy advisers to reassure them of the Company’s
direction – large scale proxy solicitation campaign, turnout was almost 84%
The Outcome
▪ Shareholders voted decisively against Coast Capital’s attempt to take control of the Company
by defeating all of the resolutions. Voter turnout 83.69% of the total number of votes eligible
▪ Later Chair Jim Winestock and Imelda Walsh resigned.
▪ The ISS supported candidate was not eligible to stand, but post event David Martin appointed
to become Chair (15 Aug)
Type Requisitioned GM
Vote
requirement
Majority
Deal Value n/a
Event 14 shareholder
resolutions
Year 2019
Shareholders voted decisively
against Coast Capital’s attempt to
take control of the Company by
defeating all of the resolutions
RNS of 25 June 2019
“
”
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Case Study – Ventus 1 and Ventus 2Background
• Ventus 1 and Ventus 2, two linked Venture Capital Trusts (VCTs) involved in “green” energy, received requisitioned resolutions from a group of
activist shareholders, led by Nicholas Curtis, in July 2019 ahead of the AGMs in early August 2019 (held on 9 August 2019)
The Challenge
• These resolutions sought to remove key directors from both VCTs and replace them with activist candidates based for a number of reasons
including:
• The running costs were too high given the nature of the VCTs’ development;
• That the management firm had contracted a related third-party to provide services to both VCTs at less than advantageous terms; and
• That “internal management” of the portfolios would result in greater value for shareholders and that such internal management could be
conducted by the activists.
The Solution – The Boudicca program
• A public communication program, including RNS announcement(s), outlining the Boards’ rebuttal of the activists’ key arguments;
• A risk assessment of the activists’ requests from a corporate governance perspective, together with an analysis of the provenance of the
activists’ candidates for directors;
• A frequent share register analysis to identify key movements in shareholdings across the constituencies;
• Call flow and email scripts drafted to ensure compliance with regulations and to make key points effectively;
• Several physical mailing to shareholders, IFAs, nominees and other, related parties (e.g. Proxy Advisors);
• Detailed briefing for and execution of Proxy Advisor contacts; and
• A telephone-based retail shareholder campaign to highlight the Boards’ key arguments, reaching over 500 individual contacts.
The Outcome
Following Boudicca’s campaign for both VCTs:
Ventus 1 - all activist resolutions were voted down;
Ventus 2 – all bar 1 activist resolutions were voted down.